KEY POINTS
- Africa wants GDP calculations to include natural capital.
- Investors remain skeptical about how this impacts borrowing costs.
- Discussions will take center stage at the G20 and AU summits.
African nations are making a renewed push to recalculate Gross Domestic Product (GDP) to include natural wealth, arguing that this would improve debt metrics and lower borrowing costs.
The African Development Bank (AfDB) leads the initiative as it presents the effort to major international gatherings including G7, G20 and African Union summits.
AfDB President Akinwumi Adesina urges global institutions to modify their evaluation methods for Africa’s economies, as they possess large quantities of natural assets such as forests, minerals, and environmental systems vital for worldwide climate stability.
According to the United Nations, Africa accounts for one-fifth of the world’s bird species, one-quarter of all mammal species, and one-sixth of the remaining forests—resources that should be factored into GDP.
The AfDB estimates that in 2018, Africa’s GDP stood at $2.5 trillion, but its natural capital was worth $6.2 trillion. The bank recommends modifying GDP measurements by adding these assets because it would enhance debt-to-GDP ratios, which plays a dual role in investor trust and borrowing expenses.
Skepticism remains over GDP recalculation impact
African leaders are optimistic yet financial institutions together with credit rating agencies show doubt about potential growth.
The transition to monetize natural wealth faces hurdles because African nations have not fully taken advantage of carbon credit markets along with other financial instruments linked to conservation.
Kariuki Ngari, CEO of Standard Chartered Kenya, cautioned that a higher GDP does not necessarily mean stronger repayment capacity. “You can increase your GDP on paper, but if the ability to pay back debt does not improve, lenders will still see risks,” he explained.
According to Reuters, critics also pointed out that while Africa faces higher interest rates than developed countries, the root issue is not just GDP measurement but structural economic challenges, governance issues, and investor risk perception.
The interest rates for Kenyan and Nigerian bond issuances reached approximately 10 percent while U.S. rates and other developed economies maintained sub-5 percent levels during the previous year.
Upcoming summits to address Africa’s debt and financing
This proposal will play a major role during South Africa’s G20 presidency as well as the upcoming African Union summit in Ethiopia.
Leaders aims to establish common ground regarding GDP recalibration and work for finance institutions to modify their economic assessment methods for African nations.
Moreover, the discussion also ties into climate change and Africa’s potential to become a renewable energy powerhouse. The low rate of solar capacity installation in Africa remains below one percent globally because of excessive financing expenses, despite its remarkable solar potential.
Also, the recent debt restructuring in Zambia serves as a support for development fund mobilization initiatives.
China as Africa’s leading bilateral creditor stands behind the demand for new GDP valuation models because they understand the necessity of creating balanced economic assessment methods for the region.
The African leadership continues its dedication to secure worldwide recognition of natural resources while implementing financial changes to reduce borrowing expenses for expanding African economies.
